Beer Market

 The beer industry lost its froth and bubbles when demand for the brew decreased 28%
as a result of the excise duty increase in November '98. The industry formally anticipated to give a kick to sales is now going flat. December and April being the festive months, sales during that period increasedwhen compared to the rest of the year. Further, sales
during end March '99 too were reasonable in comparison to November '98, January '99 and February '99, asretailers stocked up in anticipation of the liquor shops being closed during the first week of April, due to Provincial Council elections. However, sales have declined once again during May and June '99, to the November '98 levels.

Time limits set for pro notes

By Mel Gunasekera

The Central Bank has proposed that only listed companies can issue of bank guaranteed promissory notes.

Under the draft guidelines issued by the Bank Supervision Department to licenced commercial banks and licensed specialised banks, pro notes (promissory notes) will be issued for a minimum three-month and a maximum six-month period.

At present, bank guaranteed pro notes are issued for a period exceeding six months.

The draft includes that each issue should be form minimum Rs. 25 mn. Debt securities may be issued in multiples of Rs. 100,000. The minimum amount invested by a single investor should be Rs. 100,000.

The proposal includes a provision that bank guaranteed pro notes cannot be issued to institutions that accept public deposits. The companies should also have a tangible net worth of not less than Rs. 100 mn as per audited balance sheet for the financial year immediately preceding the proposed date of issue of debt securities.

However, the proposal has attracted criticism from debt market specialists, who say Central Bank is taking a step backwards in the development of the debt market.

Pro notes are not regulated at present. Since commercial paper is restricted to quoted companies, over the years, pro notes have become an alternative method for unquoted companies to raise money outside the banking system.

However, a Banking Supervision Department official defended the guidelines saying, they were being introduced to minimise the risk to the banks as well as the investors. Unlisted companies are sometimes risky, so the investor must be protected, the official said.

"Investors have no need to worry as the bank has guaranteed the pro note of an unlisted company anyway," a debt market specialist said.

"Central Bank's proposal is not only closing the door for unlisted companies, its also killing the development of the debt market," he said.

Equity analyst say the proposal tantamount to forcing companies to seek a listing if they want to avail themselves of these debt securities.

The CSE and Securities and Exchange Commission brought in new rules recently, which enables company's to list their debt independent of equity, prior to conforming to certain conditions.

Primary dealers: nine get green light

Only nine out of 18 primary dealers have responded to the Central Bank's call to form dedicated primary dealers, Central Bank sources said.

The nine include: National Savings Bank, People's Bank, Bank of Ceylon, Vanik, Namal/DFCC (joint), MB Financial Services, Waldock McEnzie, Asia Capital and Ceylinco Securities & Financial Services/Seylan Bank (joint), The Sunday Times learns.

The new companies are scheduled to begin operations from August this year.

Central Bank brought in new guidelines requiring primary dealers to have dedicated entities, with a separate capital requirement, if they wish to deal with government securities.

The guidelines came under fire, when commercial banks dragged their feet on committing themselves to form separate entities. Primary dealing is an insignificant activity for commercial banks. The potential is there but not harnessed enough due to conflict of interest, as treasury bills and bonds compete directly with commercial bank deposits.

Under the new regulations, the capital requirement would be gradually increased from Rs. 150 mn to Rs. 200 mn by 2000 and Rs. 500 mn by 2003.

The CB would evaluate the performance of each primary dealer half year once at the end of June and next in December every year.

World Bank assistance is being sought by CB to formulate a surveillance system to conduct off-site and on-site surveillance.

Observers say the new regulations have attracted dealers who are interested in fixed income trading.

At present, there are 18 primary dealers, (7 non-financial and 11 financial institutions).

Despite a significant number of dealers, the local debt market has been a dead market for a long period. Hence, CB was keen to permit only institutions that are keen to develop the long-term debt market, financial sources said. The new guidelines are also one step towards dropping foreign banks, as they do not contribute significantly to primary dealer activities.

Some primary dealers like MB Financial Services have already formed a separate company for primary dealership activities.

Tea to Iraq: Can it honour accord?

By Shafraz Farook

With the intention of buying 6 mn kilos of Ceylon tea the Iraqi delegation signed a Memorandum Of Understanding (MOU) with the Sri Lankan government. But the question is will they honour this agreement?

Till December last year, Sri Lankan teas were sold through Jordan and Russia. They dishonored an agreement made with them during the second stage of the oil for food programme (June 1997 to December 1997) to buy three million kilos of Sri Lankan tea.

And how significant is 6 mn kilos of tea? Most industry officials said, if the deal materialised, it would do well to boost the ailing industry. Asia Siyaka Tea Brokers said, though it was not a large quantity and the amount agreed was nowhere near the quantity supplied to Iraq before UN sanctions, but would make a significant impact in the industry.

It is now important to convert this agreement into actual contracts as soon as possible to hasten market impact, Asia Siyaka said. Since Iraqi's buy high and low grown BOPs and the fact that we are going into the Uva season, will complement each other.

Forbes and Walkers Tea Brokers said that it was a good sign that we got at least 6 mn kilos but that we had the potential of supplying 30 mn kilos. We should at least go up to 15 mn kilos. Though it was encouraging, it would not make an impact on the industry, Forbes said.

BellComet offers two in one package

Lanka Bell and Comet Cable have teamed up to provide 'BellComet', Sri Lanka's first a phone and entertainment package to their customers.

Under the scheme, BellComet customers will get telephone and entertainment discounts, which would entitle them to savings of up to Rs. 10,000, the company announced last week.

Any present or future Comet Cable subscriber would now be entitled to one Lanka Bell phone line at Rs. 12,500 (17% discount on Rs. 15,000 normal offer), Lanka Bell CEO, Vijay Watson said.

They can also get two telephone connections (taken simultaneously at the same location) for Rs. 17,500 (a 22% discount on Rs. 22,500 normal offer), he said.

Comet Cable subscribers who already have a Lanka Bell connection can get an additional line for Rs. 5,000, he said. Lanka Bell subscriber can get a Comet Cable connection at Rs. 10,000 (a 26% discount on the regular Rs. 13,500 offer), Comet Cable Chairman, Gerard P Dennehy said.

NSB poised to reach greater heights

By Dinali Goonewardene

The National Savings Bank (NSB) is poised to undertake a gamut of new activities such as pawn brokering, personal banking, lotteries and investing in equities, under the proposed amendments to the NSB Act.

"The NSB Act came up for revision in parliament last week and we are waiting for the changes to be gazetted," NSB Chairman, Cyril Herath told The Sunday Times Business.

The bank will also appoint agents overseas to mobilise funds. "We view the Middle East as a prospective destination to appoint an agent, due to the high proportion of migrant workers," Mr. Herath said.

"These changes are being enacted with a view to making the bank more competitive and projecting the image of a family bank. The provision of a variety of services under one roof will increase deposits," he said. Personal banking services will enable the bank to provide loans for illnesses, education and funerals without the security of a fixed deposit.

Under the current legislation the bank may only grant loans using fixed deposits as security. Deposit mobilisation is Rs. 88 bn at present.

"'The competitive environs within which the bank operates necessitates the introduction of new products," Mr. Herath said.

The bank will launch "Prarthana", a children's saving certificate in July this year. The performance of children's savings accounts "Hapan" and "Punchi Hapan" launched earlier, have surpassed expectations, he said.

Although target savings for these two schemes was Rs. 89 mn for six months, over Rs. 200 mn was raised.

A target of Rs. 1 billion is estimated to be raised through 'Prarthana' savings certificates. Savings certificates are available in denominations of Rs. 10,000, Rs. 25,000, Rs. 50,000 and Rs. 100,000. The purchase value of a certificate depends on the denomination of the certificate and the age of the child. The certificate matures when the child reaches 16 years. An interest rate of 11 per cent is sustained throughout.

If there is a continuous upward movement in interest rates the bank will pay a bonus on maturity of the certificate and will make a provision for this payment in its profit and loss account. "This product will service the banks need for long term funds," NSB officials said.

Mind your business

By Business Bug

A good by

Overseas investors are usually hesitant to put all their eggs in one basket but there may be exceptions.

One such exception is the impending debenture issue of a bank that boasts that it serves the sons of the soil.

Overseas buyers say this is one of very few shares which has held a steady price in the face of plummeting stocks and they figure the debenture will be a very good buy. So watch out folks, demand will certainly be more than supply in this issue...

Enough is enough

The local insurance sector is among the most competitive of trades in the country, despite the large market share held by the 'leader' in the industry.

Nevertheless, there are more overseas companies wanting to join the local market, mostly because they feel the market could still accommodate more players.

The government though, is not so sure. And that is why the powers that be have withheld the green light for more competitors.

Stepping u gas

The auto gas conversion industry took a double blow last week when the gas price was increased by ten per cent and also because government announced a tax will be levied on petrol vehicles being converted to run on gas.

This has sent alarm bells ringing in the trade which fears this will be the death knell for what was a once profitable industry.

Now, hectic lobbying is on to have the taxes revoked or at least, have it reduced to a nominal amount...